Good morning. What do the U.S. midterm election results mean for finance leaders? With Democrats winning control of both chambers of Congress, companies could face greater scrutiny of issues such as AI investment and data center development. But the broader financing challenges facing finance chiefs extend beyond the shifting political landscape.
“CFOs should go into 2027 expecting sustained higher borrowing costs,” Josh Putnam, EY-Parthenon’s global and Americas corporate finance leader, told me. Financing conditions are also likely to remain volatile, regardless of which party controls Congress.
Growing deficits, strong capital demand, inflation volatility, and policy uncertainty are putting pressure on long-term rates, Putnam said, making disciplined capital allocation, debt management, and investment decisions increasingly important for finance chiefs.
His advice is to stress-test investment hurdles, evaluate debt maturities, and protect balance-sheet flexibility. Companies must understand which investments can generate returns above their cost of capital and redirect resources when they cannot, he said.
Planning for fiscal uncertainty
Political gridlock could add risk, but on its own it does not necessarily mean higher long-term borrowing costs.
A divided government “would not automatically push term premiums higher,” said Gregory Daco, EY-Parthenon’s chief economist. But repeated budget disagreements, shutdown risks, debt ceiling stress, and greater fiscal uncertainty “would reinforce upward pressure,” he said.
Daco recommends testing investments against a range of financing costs and maintaining hurdle rates that reflect a structurally higher and more volatile cost of capital.
For companies, however, the risks extend beyond long-term interest rates. Political uncertainty can also affect access to credit and the cost of short-term financing.
“Markets respond to uncertainty by charging more, whether the risk originates in Washington, D.C., or on Wall Street,” said Mark Williams, a master lecturer in finance at Boston University’s Questrom School of Business and a former bank examiner for the Federal Reserve Bank.
Williams said that banks react to elevated risk by tightening credit terms and reducing lending. “Legislative gridlock can create volatile funding cycles and cause short-term borrowing costs to spike,” he explained. Companies relying on commercial paper, a form of short-term corporate borrowing, should consider longer-term funding, diversify financing sources, and secure credit lines across multiple banks, he said.
Because a divided government can increase the risk of shutdowns, which can delay the release of economic data, CFOs should also develop internal models to fill those gaps, Williams said. Government contractors, meanwhile, should evaluate how potential payment delays could affect cash flow.
The rising cost of the AI boom
AI investment could face particularly intense financial scrutiny as financing costs rise and regulatory uncertainty increases.
Voters on Tuesday sent a clear message about the AI buildout: the costs of data centers are now a political issue. Candidates in both parties who campaigned on rising electric bills won key races, and at least 14 Ohio towns passed restrictions on data center development, Fortune reported.
The results underscore the growing regulatory and political uncertainty facing AI and data center developers, which could drive up costs and complicate project financing, Williams said. Private credit funds, the primary lenders in the space, would demand higher interest rates, he said, and prices on outstanding AI bonds could fall as yields rise.
But the market was already recalibrating AI risk before the election, Williams noted. He recommends returning to corporate finance fundamentals, including more conservative net present value assumptions, multi-variable scenario analysis, and stress testing against higher borrowing costs and stricter lending covenants.
Daco also sees a political dimension. With affordability central to the election, “a backlash is likely if households see AI investment raising power costs while its benefits remain concentrated,” he said.
CFOs should prioritize projects with measurable productivity gains, account fully for power and infrastructure costs, and pair technology investment with investment in workers and skills, Daco said.
The financial discipline required to navigate the next economic cycle remains vital. As Putnam put it, “Companies that demonstrate they can put capital to work effectively will be best positioned to pursue growth.”
Sheryl Estrada
Sheryl.Estrada@fortune.com
This story was originally featured on Fortune.com
